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Monday, July 31, 2006

Saving Money: Possible Tax Deductions for Home Businesses

If you operate your own home business, then you are probably aware that there a few drawbacks to being self-employed. Working for yourself often means that you lose many workplace benefits, such as group insurance, sick leave, paid vacations, etc. However, the government does provide solace to those who have an entrepreneurial spirit, and this solace comes in the form of tax breaks. There are many possible tax deductions for home businesses; you simply have to be well-informed about them.

Why should you go through the trouble? Well, because you’ll earn more money that way. By knowing all the possible tax deductions that you can take, you’ll come away with more of the benefits that your business generates, instead of getting cleaned out by the government. When it comes to taxes, make no mistake about it – knowledge is power.

If you run a home business, some of the possible tax deductions for you are:

Home office costs, such as those that involve office repairs and maintenance. Expenses racked up through janitorial services, for example, when shown to be needed by the business, are deductible, as are waste management and garbage disposal services. Business furniture and equipment may also qualify for deductions in their year of purchase, as long as the amount does not exceed a certain limit.

Utility costs, such as electricity and water. The deduction applies to those areas that are used regularly and exclusively for business.

Telephone costs. This only applies if you have a separate line for use in business. A single line that is used for both business and personal calls does not qualify. However, if you make long distance calls and/or incur fax transmission fees, those expenses are deductible not matter which type of phone you use.

Rent or lease payments. A percentage of your rent, lease, or mortgage interest payments can be deductible provided that you are using the property regularly for business purposes.

Employee wages and employee benefits. If you are an employer of labor, you can deduct a portion of your salary and benefit expenses. Employee education and training costs are also deductible.

Education costs necessary in your line of work. This applies especially to professionals. Those who need continuing education to maintain their expertise may deduct the cost of this education from their tax returns.

Real estate taxes on business property. A portion of real estate taxes are considered deductible by the IRS.

Personal expenses. Some personal expenses, when conducted in conjunction with business affairs, are deductible. A portion of your automobile expenses, meal allocations, and travel and entertainment cots may qualify for deduction, as log as they are related to your business.

A final reminder: Try to maintain as accurate records as is possible. Document your deposits, income, expenses and deductions. This way, you will have proof validating your tax deductions. Because tax laws are complex and often change, it is often advisable to consult a professional. This will allow you to claim as many possible tax deductions for home businesses as you can.